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On Reinvestment within China by Foreign Investment Enterprises
The phrase "reinvestment within China by foreign investment enterprises" means an act whereby a Sino-foreign equity joint venture, a Sino-foreign cooperative joint venture or a wholly foreign-owned enterprise legally established in China in the form of a limited liability company, invests in and establishes an enterprise in China or purchases the equity of another enterprise (hereinafter refereed as "Investee Company") in China in its own name.
Foreign investment enterprises may invest only if they meet the following conditions:
1. Their registered capital has been fully paid up;
2. They have become profitable; and
3. They are operating legally and have no record of illegal operations.
The aggregate amount invested domestically by a foreign investment enterprise may not exceed 50% of its net assets; increases in the form of capitalized profits received from the Investee Companies shall not count towards the net assets.
To invest in and establish a company in the encouraged or permitted category, a foreign investment enterprise shall submit an application and the materials set forth below to the company registration authority of the place where the Investee Company is located:
1. The unanimously adopted resolution of the foreign investment enterprise's board of directors concerning the investment;
2. The foreign investment enterprise's approval certificate and business license (photocopies);
3. The capital contribution verification report issued by a statutory capital contribution verification institution attesting to the fact that the registered capital has been fully paid up;
4. Audited balance sheet of the foreign investment enterprise;
5. Documentation proving that the foreign investment enterprise has paid enterprise income tax or that it has had its income tax reduced or exempted; and
6. Other materials specified in laws, regulations or rules.
To invest in and establish a company in the restricted category, a foreign investment enterprise shall additionally submit an application and the materials set forth below to the provincial level authority for foreign trade and economic cooperation ("Provincial Level Examination and Approval Authority") of the place where the Investee Company is located: the articles of association of the Investee Company. Besides, the investors shall sign their names and affix their seals to the company's articles of association.
After receipt of the aforementioned application, the Provincial Level Examination and Approval Authority shall, in accordance with the scope of business of the Investee Company, seek the opinion of the industry administration authority at the same level or at State level. The Provincial Level Examination and Approval Authority shall issue a written official reply within 10 days of its receipt of the opinion of the industry administration authority at the same level or at State level as to whether or not it agrees. If the official reply from the Provincial Level Examination and Approval Authority to the foreign investment enterprise states that it agrees, the foreign investment enterprise shall apply for registration of establishment to the company registration authority of the place where the Investee Company is located, on the strength of the written official reply.
If a foreign investment enterprise purchases equity of another investor in the Investee Company and the scope of business of the Investee Company falls within the encouraged or permitted category, the Investee Company shall submit the relevant materials hereof to the original company registration authority and apply for amendment of registration in accordance with relevant regulations such as the Company Registration Regulations.
If the scope of business of the Investee Company involves a field in the restricted category, the foreign investment enterprise shall, after carrying out the stipulated procedures hereof, apply to the original company registration authority for amendment of registration in accordance with relevant regulations such as the Company Registration Regulations, etc., on the strength of the official reply in which the Provincial Level Examination and Approval Authority stated its agreement.
The company registration authority shall decide whether to grant registration or not pursuant to the relevant provisions of the Company Registration Regulations. Companies granted registration shall be issued an (Annotated) Business License.
If the Investee Company is a foreign investment enterprise, matters shall be handled in accordance with the Changes in Equity Interest of Investors in Foreign Investment Enterprises Several Provisions.
If a foreign investment enterprise invests in a company in Central or Western China and foreign investment accounts for not less than 25% of the registered capital of the Investee Company, the Investee Company shall be eligible for treatment as a foreign investment enterprise. If the Invested Company is eligible for treatment as a foreign investment enterprise, an application therefore shall be made to the Provincial Level Examination and Approval Authority of the place where the Investee Company is located, in accordance with the procedures for the establishment of foreign investment enterprises. The applicant shall submit the following materials:
1. The aforementioned materials required when investing in and establish a company in the encouraged or permitted category;
2. The name and domicile of the Investee Company;
3. The contract for investment and the articles of association of the Investee Company;
4. If the scope of business of the Investee Company involves a field in the restricted category, the project proposal and feasibility study for the establishment of the Investee Company shall also be submitted.
If the Investee Company is treated as a foreign investment enterprise and an investor assigns its equity therein, the applicant shall submit the relevant agreement for the assignment of the investor's equity, in addition to the materials enumerated in the preceding paragraph, to the Provincial Level Examination and Approval Authority of the place where the Investee Company is located.
If the Provincial Level Examination and Approval Authority confirms that the investment of the foreign investment enterprise complies with relevant State laws and regulations and that foreign investment accounts for not less than 25% of the registered capital of the Investee Company, it shall issue the applicant an approval document and an Approval Certificate for a Foreign Investment Enterprise with the words "Invested in by a foreign investment enterprise" noted thereon. The applicant shall apply for registration to the company registration authority of the place where the Investee Company is to be located on the strength of the Approval Certificate for a Foreign Investment Enterprise. The company registration authority shall decide whether to grant registration or not pursuant to the relevant provisions of the Company Registration Regulations. Companies granted registration shall be issued an (Annotated) Business License. Investee Companies that are located in Central or Western China shall be eligible for the treatment accorded to foreign investment enterprises as provided for in State laws and regulations on the strength of their Approval Certificates for a Foreign Investment Enterprise and (Annotated) Business Licenses.
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